The human olfactomedin 4 gene (OLFM4) encodes an olfactomedin-related glycoprotein. OLFM4 is normally expressed in a limited number of tissues, including the prostate, but its biological functions in prostate are largely unknown. Loss of olfactomedin 4 (OLFM4) gene expression is associated with high grade of human prostate cancer. Genetics studies have found that deletions within the olfactomedin 4 (OLFM4) gene occur in approximately 25% of human prostate-cancer samples. To explore cellular and molecular mechanisms underlying OLFM4 functions, we investigated Olfm4-knockout mouse model and human prostate cancer cells that lack OLFM4 expression. Phenotypically studies of prostate from Olfm4-knockout mice found that sporadically developed prostatic intraepithelial neoplasia and prostatic adenocarcinoma in an age-dependent manner. The gene-expression signature of prostate tissues from Olfm4-knockout mice at 3 month-old and 15 month-old revealed significant changes for genes associated with prostate neoplastic progression. Sonic hedgehog-signaling pathway and target genes were significantly up-regulated in prostate from Olfm4-knockout mice. Importantly, we found Olfactomedin 4 inhibits prostate stem/progenitor cell growth and epithelial-to-mesenchymal transition (EMT) through down-regulated the hedgehog-signaling pathway genes and target genes activities. Moreover, we demonstrated that OLFM4 inhibited the hedgehog-signaling pathway via direct interaction with sonic hedgehog protein. Bioinformatic and IHC analyses revealed that lost OLFM4 and increased SHH expression was significantly associated with advanced human prostate cancer. Thus, olfactomedin 4 appears to play a critical role in regulating progression of prostate cancer, and OLFM4 protein has potential as a new marker for improving diagnostic/prognostic accuracy and likely targets for therapeutic approaches to prostate cancer.